Consideration & Alternatives to Consideration

Question 1

two tests for consideration

Answer 1

benefit-detriment

BFE

Question 2

benefit-detriment test

Answer 2

C/L - no longer used

did the promisee suffer a detriment, or give a benefit to the promisor?

Question 3

bargained-for exchange

Answer 3

are the promisor and promisee reciprocally induced by what the other party is giving?

Question 4

common issues with consideration

Answer 4

conditional gifts
illusory promises
past consideration
settlement agreements for worthless claims
contract modifications
discharge of duties from an existing contract

Question 5

conditional gifts

Answer 5

have a string attached - promisor stipulates to a condition that promisee must fulfill before he can receive the gift

consider:
- is there a benefit to the promisor if the condition is met?
- if so –> it is a fair inference that the promisee’s action/inaction was requested as consideration

Question 6

illusory promises

Answer 6

call for one party’s total discretion

courts prefer a construction which will make it enforceable –> often find a duty to act in good faith

alternative promises are valid consideration as long as each separately would constitute consideration

Question 7

settlements based on worthless claims

Answer 7

split jurisdictions

forbearance to assert a claim/surrender of a claim which is invalid is not consideration UNLESS claim/defense is doubtful because of an uncertainty of fact/law, and that party believes it may be fairly determined to be valid

Question 8

contract modifications and the pre-existing duty rule

Answer 8

general rule is that consideration is required to modify a contract (duty under OK that is already owed cannot serve as fresh consideration) –> some exceptions

modification (where not fully performed on either side), when:
- mod is fair/equitable in light of new circumstances
- to extent provided by statute
- to extent that justice requires enforcement

UCC does not require consideration for modifications to be binding, but does impose a duty to act in good faith

Question 9

mechanisms of discharging of duties

Answer 9

agreement of mutual rescission
substituted contract
novation
accord/satisfaction
substituted performance

**note: all require consideration

Question 10

agreement of mutual rescission

Answer 10

parties can rescind an agreement by making a subsequent promise-for-promise agreement to discharge the parties’ remaining duties, but ONLY IF the contract is at least partly executory (unperformed) on both sides

Question 11

substituted contract

Answer 11

if an obligor offers the obligee a promise of a different performance in satisfaction of the original duty, the obligee is free to refuse/accept that promise

if obligee accepts, obligor’s orig duty is discharged if the duty is supported by consideration

Question 12

novation

Answer 12

needs third party

OPs have contract –> TP takes OP1’s place –> OP2 cannot now sue TP for Br/K, OP1 is discharged

Question 13

accord and satisfaction

Answer 13

a party promises to undertake a different obligation but is not relieved until that obligation is completed

if the executory accord is not performed, the obligee may sue under the OK or on the accord agreement

Question 14

substituted performance

Answer 14

if an obligor or TP offers the obligee a different performance for the one promised in the OK, the obligee is free to refuse or accept that performace in substutution for the original duty under the K

if the obligee accepts, it immediately discharges the obligor’s original duty IF the discharge is supported by consideration

Question 15

alternatives to consideration

Answer 15

promissory estoppel
promissory restitution
unjust enrichment

*** support a claim br/K. always look to consideration first

Question 16

promissory estoppel

Answer 16

promise made before the act/benefit

elements:
1. has there been a promise?
2. did promisor have a reasonable expectation that the promise would induce the promisee to act/forbear from acting?
3. did the promise induce ACTUAL reliance?
4. was the detrimental reliance by the promisee justified?
5. is enforcement of the promise necessary to avoid injustice?

construction contract –> when a subcontractor makes a bid, it presumably knows that the general contractor is going to rely on that bid to make its own

Question 17

promissory restitution

Answer 17

promise made after the fact/benefit (benefit precedes promise!)

technically past consideration

elements:
1. promise
2. made in response to a material benefit already received
3. by the promisor
4. from the promisee, and
5. enforcement of the promise is necessary to prevent injustice

Question 18

unjust enrichment

Answer 18

no promise

a person who is unjustly enriched at the expense of another is subject to liability in restitution

elements:
1. enrichment/benefit, that is
2. unjust to retain without compensation

Question 19

void

Answer 19

never happened/not enforceable

Question 20

voidable

Answer 20

legally binding, but one party possesses ability to void the contract